The Cost Of Living Crisis & The Impact On The Used Car Industry

The Cost Of Living Crisis & The Impact On The Used Car Industry

The hardest elements of the cost of living crisis to deal with, are that we don’t know when it will end and that we don’t know what it will affect next. Inflation affecting food and energy prices is pretty much what we would expect, but when it starts to influence housing and motoring, this is when seismic lifestyle shifts start to be considered. And right now the used car industry is starting to feel the pinch, as it has gone from a boom period during the COVID pandemic to a distinct sense that the bubble has burst right now, leaving drivers looking around for affordable motoring alternatives.

A recent study by What Car questioned 1232 motorists, and the headline responses were that 36.6% of motorists had been put-off purchasing a new car by the current inflation hikes. 39.7% had also decided to change the model of their car to a cheaper version, while 35.1% had changed their budget altogether. You would expect this to be a welcome sign for the used car industry and clear evidence that the cost of living crisis is now affecting major purchases such as new cars, but there is just as much evidence that the used car market is feeling the pinch too.

The COVID boom time for the used car industry

The COVID-19 pandemic couldn’t have come at a worse time for the new vehicle industry. It created a shortage of semiconductor chips which effectively brought production to its knees and created a huge backlog in supply. This supply chain issue, with much fewer new cars being manufactured, led to an unexpected boom for used cars, at a time when people were sat at home with very little to do other than spend money online and dream about escaping out onto the open road at the very first opportunity. The used car industry cleaned up and a recent study by This is Money reported that the average used car price in July 2022 was £4500 higher than it was pre-pandemic, and the average used car price was £17,252.

However, the might of the major car manufacturers wasn’t going to be supressed for long, and the solutions to the supply chain issues and the post-pandemic recession we are now experiencing have combined to cause some nervous twitches in the used car industry.

Although the average used car price is still higher than pre-pandemic, it has lowered in the last 12 months, and stock levels have also lowered as used car dealers have anticipated a change in buying trends. eBay Motor Group’s Market View has claimed the average used car price has reduced by 1.4% in the last 12 months, and the reduced demand dealers are now experiencing has meant that they are now taking longer to sell cars and are struggling to know how to manage their inventories.

What cost of living factors have affected used cars?

Other cost of living factors affecting the used car industry include:

• Motorists cancel deals on used cars because they decide they can’t afford them

• Motorists are declined finance deals because of a reduction in their spending abilities. It is believed that credit refusals for personal and business finance have increased by 33.6%, and bad debt has increased by more than 40% since November 2021

• Borrowing is becoming more expensive: interest rates are expected to rise further in the next 12 months, reducing the likelihood that buying a used car on finance will be viable

• Vehicles are repossessed because people can’t keep up with their repayments

• Maintenance costs are increasing by more than 15% due to parts and labour prices, meaning used cars are looking a lot less attractive because they require more maintenance

• Semi-conductor chips are now in over-supply so the new car market is kicking in to gear again, leaving used car dealerships with surplus stock they can’t shift

So people are penny-pinching and revising their spending plans because of the cost of living crisis, but they still have lifestyle aspirations and in many cases will have the everyday necessity of changing cars. Naturally, in many cases they will also want a new one. So if buying a new car is a financial non-starter and the used car market is not as appealing as it once was, the most attractive alternative is car leasing.

Car leasing is an affordable alternative to the used car market

With car leasing you don’t carry the financial burden of a depreciating asset and can tailor a package to suit your monthly budget and with only a short-term commitment. Furthermore, because you are paying only for the depreciation of the vehicle rather than the ownership, you can improve your options and consider a higher spec of vehicle for the same financial outlay. Effectively, you can drive a new vehicle in a cost-effective way, because this also results in reduced service and maintenance costs.

If you want to beat the cost of living crisis, manage your money better by forgetting about vehicle ownership and consider vehicle leasing instead. Control your spending and minimise your monthly outlay by getting in touch with Pink Car Leasing today.